Feeding the Leviathan

Before I begin, I need to call your attention to Fulton County, Georgia. The laws of the state of Georgia compel a County Board of Commissioners to appoint a Board of Elections, whose members will be comprised of names submitted by both the county’s Democratic Party and Republican Party.

The Board of Commissioners has refused to sit two Republican members. A court ruled the law gives Commissioners no choice in the matter. They must approve the Republicans. But, last night, the Board of Commissioners defied the court. You won’t hear about this on national news, but Democrats have chosen to ignore an explicit court order claiming a court cannot compel a commissioner to vote in a particular way. The problem is that the law says “shall appoint” and it is the law, not the court, at issue. The Democratic commissioners are choosing to both ignore the explicit law and the court of law and the Democrats complaining about Trump possibly ignoring the courts will cheer the Democrats actually ignoring the courts and the law.

Now…

The economy can be both very complex and very simple. In very simplified terms, consider two buckets. One is the public sector and one is the private sector. As more money flows into the bucket of the public sector and fills it up, the private sector bucket does not fill up. But the private sector uses money more efficiently and provides economic growth to citizens. As the government leviathan grows, it harms the private sector and, with it, working Americans.

Consider Fannie Mae and Freddie Mac. Before the financial crisis of 2008, Fannie and Freddie backed forty-five percent of all mortgages. During the crisis, the federal government took over Fannie and Freddie. Combined, they now back over sixty percent of all mortgages. Add in FHA and VA loans and the American taxpayer now backs almost eighty-five percent of all mortgages in the United States. Should there be another housing crisis, the taxpayers will foot the bill.

It is not just taxpayer liability that matters. Fannie and Freddie now back so many mortgages in the country that that lenders have ceased innovation on mortgages. Every mortgage conforms to Fannie and Freddie standards. In some countries, a homeowner who gets a low interest mortgage on a home can transfer that mortgage to a new home, letting the homeowner keep the same low rate and incentivize greater flow within the housing market. The CATO Institute and others have noted that Fannie and Freddie being under government control have not only stifled innovation in the mortgage industry, but have also contributed to the housing crisis.

When the federal government took control of General Motors, GM no longer engaged in risk assessed based on shareholder value and economic value, but in political risk. Because Barack Obama was in charge, GM foolishly pushed ahead with now canceled electric vehicle projects that cost the company more than it made in return. GM, with government control, was able to bypass the claims of bond holders in order to reward the United Auto Workers Union at the insistence of the Obama Administration. Small investors who held GM bonds lost out because of the political connections of unions. One of them, Anthony Pitelli, told the press, “This is the kind of stuff you'd expect from a banana republic. Not from the United States.” He compared the heavy handed Obama tactics controlling GM to Hugh Chavez and Venezuela.

Time and time again, when the government gets involved, the leviathan grows and both the Middle Class and small businesses get the shaft. Innovation stalls and economic growth slows. Go back to the buckets. As the government issues more debt, more people buy public debt instead of investing in the public sector. The government’s bucket fills up with money that does not go to shareholders, workers, investors, innovation, or growth.

The Trump Administration is now bragging that over $150 billion has been generated from tariffs. Some of that comes from American businesses. But some of that comes from American consumers. More of it will come from consumers soon as companies raise prices. That is more money in the government bucket, not the private sector bucket.

There are ways to encourage domestic manufacturing without raising input costs on manufacturers whose raw material prices have increased due to tariffs. There are ways to encourage “Buy American” campaigns without raising prices on consumers.

Now, Commerce Secretary Howard Lutnick is urging the government to become the largest shareholder of Intel. Some defend it by citing national security reasons, ignoring the government does not own shares in other defense contractors. Others defend it because Trump is in charge, so damn the principle. But like with Fannie Mae, Freddie Mac, General Motors, etc. all this will do is increase burdens on American taxpayers, decrease efficiency in the private sector that will slow growth, and puts a major American microchip company in the position of doing what the government wants, not what is best for the company.

Americans have had it so good for so long and we have forgotten why. Most Americans will not remember why until the government takes back over large portions of the economy and our economic growth collapses. Then they will remember that feeding the leviathan starves American prosperity.

UPDATE: Bernie Sanders has now come out in support of the plan and Elizabeth Warren is, this morning, noting that she is the one who came up with the idea.